Broadcom expects $10 billion in AI chip sales by 2024, but shares fall

Broadcom expects $10 billion in AI chip sales by 2024, but shares fall
Broadcom expects $10 billion in AI chip sales by 2024, but shares fall

Broadcom stated that it anticipates $10 billion in AI chip sales this year, but its stock plummeted as the tech company’s full-year forecast failed to impress investors.

Broadcom (AVGO.O) announced on Thursday that it expected $10 billion in sales from AI chips this year, but its shares fell after the tech company’s full-year projection failed to please investors.

Marvell Technology’s (MRVL.O.) stock fell more than 6% in extended hours after forecasting revenue below market estimates.

Investors are keeping a tight eye on both companies, believing they will benefit from the growth of AI technologies like OpenAI’s ChatGPT and Google’s Gemini.

Broadcom and Marvell both sell networking chips that help move the massive volumes of data required by AI computing, and both assist clients in designing specialized AI chips.

During an earnings call with investors, Broadcom CEO Hock Tan stated that around $7 billion of the company’s AI chip revenue in 2024 will come from assisting just two key clients with specialized AI chip designs. Tan did not name the customers, but analysts commonly believe they are Alphabet’s Google (GOOGL.O), which opens a new tab, and Facebook owner Meta Platforms (META.O).

Tan added that the bespoke chip business “can command margins similar to our corporate gross margin.” In the fiscal first quarter, the adjusted gross margin was around 75%. It was reported last month that Nvidia intends to compete with Broadcom in the custom AI chip industry.

Broadcom did not raise its annual revenue target of $50 billion, which undoubtedly disappointed investors despite representing a 40% growth rate.

Broadcom’s stock rose 26% in 2024, propelled mostly by AI confidence, and the Palo Alto, California-based business is expected to develop rapidly. The stock fell more than 1% in after-hours trading when the company did not raise its earnings projection.

“For companies whose chips are more tangentially related to the AI gold rush, there will inevitably be starts and stalls in growth rates that can’t easily be mapped to the big AI trends.” Bob O’Donnell, an analyst with Technology Research,

Broadcom and Marvell both rose by more than 4% ahead of their results, reaching new highs after recent surges.

Broadcom has been praised as a benefactor of a generative AI drive across the industry sector as Microsoft (MSFT.O) and other tech heavyweights increase investment in data centers, where Broadcom sells many networking chips.

Broadcom’s AI revenue increased from a year ago to $2.3 billion in the fiscal first quarter ending February 4, more than compensating for the current cyclical slowdown in enterprise and telcos, Tan added.

Revenue from its semiconductor solutions division rose 4% to $7.39 billion in the first quarter, falling slightly short of Visible Alpha’s projection of $7.45 billion.

While Broadcom is best known as a chipmaker, its portfolio has expanded to incorporate other technology companies such as VMware and software giant CA Technologies.

Infrastructure software revenue increased 153% to $4.57 billion, above Visible Alpha projections of $4.49 billion.

According to LSEG statistics, the company recorded quarterly net revenue of $11.96 billion, which was higher than the average analyst expectation of $11.72 billion.

Broadcom announced adjusted first-quarter net income of $5.25 billion, below analysts’ expectations of $5.01 billion. Adjusted for equity compensation, earnings were $10.99 per share, compared to projections of $10.30 per share.

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